A Legacy Tarnished
This is probably not the first time that headline has been applied to former President Bill Clinton, but let’s get one thing straight right off the bat – we could care less about which intern he bent over what piece of White House furniture.
What interests us is reducing deficits, generating surpluses and cutting capital gains taxes, even if the latter wasn’t originally Clinton’s idea.
Nonetheless, our love for Bill along those purely fiscal lines has literally known no bounds, and we’ve repeatedly pointed out how his record on the budgetary issues so near and dear to our hearts is much better than the current occupant of the Oval Office.
Having said that, today is one of those rare days where the script is flipped, so to speak, and we’re actually in a position of criticizing our main man Bill and offering some rare praise to President Bush – a man we generally view with unmitigated contempt as it relates to his bungling of our country’s financial fortunes.
At issue is the utter collapse of America’s sub-prime lending market, and the resulting federal bailouts and Wall Street bloodletting that’s taken place over the last few days.
Democrats have predictably placed the blame on “corporate greed,” but in doing so they’re ignoring the fact that they’re the ones who actually created the problem, and the Bush administration actually attempted to do something right for a change.
Five years ago, you see, Bush’s advisers noticed a disturbing pattern of rapidly-escalating indebtedness at Fannie Mae and Freddie Mac, America’s twin government-sponsored (and now government-owned) mortgage giants.
The pair had run up $1.5 trillion in debt and gotten busted cooking the books Enron-style, plus evidence was mounting that they weren’t taken adequate precautions on all the mortgages they were literally handing out like candy to the least-qualified recipients.
Anyway, Bush’s team tried to do something about the problem, proposing what the New York Times called “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis.”
Not surprisingly, though, the plan was rejected by Congressional Democrats who claimed Bush was “fear-mongering” with respect to Fannie and Freddie and exaggerating their woe in an effort to keep poor people out of “affordable homes.”
Democratic Rep. Barney Frank said at the time that the two lending institutions were “not facing any kind of financial crisis,” while the class warfare gauntlet was laid down by Rep. Melvin Watt, who said Bush’s proposal was aimed at “weakening the bargaining power of poorer families and their ability to get affordable housing.”
All of which raises the one question that’s frankly at the heart of the multi-billion dollar mess our country currently finds itself in – “is it really affordable if you can’t afford it?”
To answer that question, we have to go back to our boy Bill’s tenure as president.
The year Clinton was elected, a study was issued by the Boston Federal Reserve which claimed widespread discrimination in America’s lending practices.
The effect that this study had on borrowing regulations in this country was seismic. All of a sudden, things like a borrower’s credit history, income verification, and the size of their mortgage relative to their income became inherently “discriminatory” factors.
Common sense flew out the window, and a horde of new regulations were put in place that forced financial institutions to grant loans that they otherwise never would have dreamed of granting.
Backed by the threat of fines and sanctions from a government eager to right a social wrong, the seeds of the collapse we’re currently witnessing were sown. Simply put, banks were told by the government to grant irresponsible loans – or else.
Of course, it’s interesting to note that the Boston Federal Reserve study turned out to be completely bogus, as economists identified several errors which – when corrected – showed that there was no difference in the ability of low-income whites versus low-income blacks to receive loans.
Seriously, when was the last time a credit score was racist, people? Numbers are what they are, and pencil-pushers really don’t care if you’re white, black, purple or fuschia.
Anyway, Clinton didn’t care that the study was wrong. He went along with the PC police and forced banks to issue a veritable flood of these bad loans, which have now come back to ruin the very institutions which government regulators left with no choice in the matter.
And on top of all the carnage this fiscal free fall has wrought on people’s savings, there’s also the cost to the taxpayers.
Bailing out Fannie and Freddie will run anywhere from $300-$500 billion, and the Fed just lent another $85 billion to keep AIG from going under.
All because of corporate greed, right?
Wrong … as usual, it’s the government’s fault, people.
Comments
By Toyota Kawaski on September 17th, 2008 at 9:46 am
Like i have posted before libs love libs
By FWFIV on September 17th, 2008 at 10:29 am
There is plenty of blame to go around. The Bush administration fought individual state laws designed to rein in poor lending practices. Congress was held by the GOP five years ago so there must have been plenty of republicans who did not want addtional regulations. Finally, the lending practices which caused most of this trouble were due to a runaway housing market which was fed in a circle by the lending market.
By verdas on September 18th, 2008 at 1:25 pm
It started with the Chrysler Corporation back in the 80’s
By SC Lawyer III on September 23rd, 2008 at 3:17 pm
With respect to the regulations and rulings by the Boston Federal Reserve, they simply indicated that lenders had to treat borrowers the same, regardless of their neighborhood or race.
Lenders had already begun the process of making questionable risks, the new policy was aimed at redlining and holding minorities to a different standard.
While you can debate that all you want, what cannot be debated is that the primary responsiblity laid with lenders, and investors for issuing and purchasing loans that were not properly secured for risk.
And we can safely say that contributing to that was the fact that every participant in the system at every step in the process had every incentive to issue the mortgage and none to not issue the mortgage. Separating originating lender from risk made it simply irrelavant to the people issuing the loan as to whether the risk was acceptable or not.
And the ones that purchased these loans, knew they could make vast profits chopping them up and selling them around the globe.
It was good for everyone and made everyone a lot of money. right up to when it didn’t.
COmpleted typical of unregulated markets it pushed and pushed and bubbled without regard to consequences until it popped and whoever hadn’t grabbed their seat got soaked.
But joke was on everyone else, the people that got soaked spoiled everyone else’s party.
By rick g on October 25th, 2008 at 2:30 pm
Unfortunately we are currently taking the same big government approach to fixing the problem as was done to create the problem. It also appears that on January 20th we are going to ratchet up that wrong, non market driven, approach. I wouldn’t count on your stock portfolio improving any time soon.
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